Tenant screening is one of the most critical aspects of property management, yet many landlords and property managers rely on outdated rules that don’t provide the full picture of a tenant’s financial stability. The common “three times the rent” rule—where an applicant’s gross income must be at least three times the monthly rent—is often used as a simple benchmark for affordability. But is it truly effective?
While this rule may offer a quick way to assess income, it overlooks a crucial factor: expenses. A tenant may technically meet the income requirement, but if their financial obligations—car payments, student loans, credit card debt, or childcare—consume a significant portion of their earnings, their ability to pay rent consistently could still be in question. This is why landlords should take a more sophisticated approach and underwrite tenants the way lenders evaluate borrowers.
Beyond Income: Understanding the Full Financial Picture
A responsible underwriting process doesn’t just consider how much a tenant makes—it evaluates how much they can realistically afford after accounting for their financial commitments. Before accepting an applicant, landlords should take a closer look at several key factors.
Income Stability and Reliability
It’s not just about how much a tenant earns but whether their income is stable and consistent. An applicant with a long-term, full-time job in a secure industry may pose less financial risk than someone who has multiple short-term contract jobs or fluctuating self-employment income. Additionally, multiple sources of income—such as side gigs, rental properties, or retirement funds—should be factored into the equation.
The Impact of Expenses on Affordability
A high income doesn’t always mean a tenant can comfortably afford rent. Many renters carry substantial recurring expenses, including auto loans, credit card payments, student debt, medical bills, and even child support. These obligations impact their debt-to-income ratio (DTI)—a key factor lenders use to assess financial stability.
By considering a tenant’s total financial picture rather than just their earnings, landlords can make more informed decisions and reduce the risk of rent payment issues down the line.
Household Size and Financial Obligations
Lenders recognize that household size directly affects financial responsibility, and landlords should do the same. A single renter earning $60,000 a year and a family of five earning the same amount will have vastly different financial obligations. Childcare, groceries, healthcare, and other expenses can significantly reduce the amount of disposable income available for rent.
Similarly, in shared housing situations where multiple tenants are contributing to rent, evaluating each applicant’s financial stability can help ensure the household as a whole is able to meet its rental obligations.
Credit and Rental History: Looking Beyond the Numbers
While income and expenses are important, a tenant’s credit history offers valuable insight into their financial habits. A strong credit score with a history of on-time payments suggests a responsible borrower, while high credit utilization, frequent late payments, or collections accounts could be red flags.
Rental history is equally important. A past eviction doesn’t automatically disqualify a tenant, but understanding the context is essential. Was it due to a temporary financial hardship, or does it indicate a pattern of nonpayment? By looking at both financial data and rental behavior, landlords can make better-informed decisions about who will be a reliable tenant.
A More Accurate Approach to Affordability
Rather than relying on a one-size-fits-all income rule, landlords should calculate true affordability using a more practical formula:
Start with the tenant’s total income
Subtract total monthly expenses (including debt payments, childcare, and other obligations)
Deduct rent and estimated utilities
Assess the remaining balance—does it leave room for financial stability?
If a tenant is left with little to no discretionary income after covering rent and expenses, they may struggle to keep up with payments over time.
Compliance with Fair Housing Laws
While thorough tenant underwriting is essential, it’s equally important to ensure compliance with Fair Housing Act (FHA) guidelines. Screening criteria must be applied consistently to all applicants, avoiding any policies that could be seen as discriminatory.
Landlords should ensure they do not:
❌ Deny applicants based on race, color, religion, sex, disability, familial status, or national origin
❌ Impose different qualification standards on applicants from protected groups
❌ Fail to provide reasonable accommodations for individuals with disabilities
Instead, all tenant decisions should be based solely on financial qualifications and rental history, ensuring a fair and legally compliant process.
Smarter Tenant Underwriting for Long-Term Stability
A tenant’s ability to afford rent should never be based on income alone. A more responsible approach—one that considers income, expenses, household size, credit history, and rental behavior—leads to better outcomes for both landlords and tenants.
By adopting an underwriting mindset similar to that of mortgage lenders, landlords can set clearer expectations, reduce unnecessary vacancies, and secure financially stable tenants for the long term.
